Category Archives: U.S. Debt Default

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The U.S. debt passed the $15 trillion mark this week. What does a trillion dollars look like? A trillion is 1 million multiplied by 1 million. 1,000 billion dollar bills in your pocket amounts to $1 trillion which is understandably inconceivable to most people. Americans should be alarmed about this $15 trillion debt when we learn that the ratio of U.S. debt to its GDP is now 102% and rising. When the debt-to-GDP ratio of a country hits 90%, it begins to become a drag on future economic growth. If this ratio climbs to 100% or higher, the economic growth becomes nearly impossible.

It appears that until Europe is fixed, its headlines will continue to drive the markets for the foreseeable future Robert Pavlik, Banyan Partners chief market strategist, expressed,“We’re capped, at least until we can knock Europe off the front page.” Gold fell more than $50/oz on Thursday as concerns of expanded contagion from the euro zone crisis caused large selloff in almost every market. There is a lot of fear, warranted or not, over the exposure of U.S. banks to the debt crisis in Europe. The concern is not over any of the countries we’ve worried about over the past few months; the concern is the exposure of U.S. banks to French and British debt. The exposure to Greece, Ireland, Italy, Portugal and Spain totaled a relatively manageable $50 billion as of Sept. 30th; however, the exposure to French debt is approximately $188 billion and exposure to British debt is approximately $225 billion.

This time of year, hedge funds and other investment firms are required to make regulatory filings with the SEC to report their holdings. These reports can give an indication as to the outlook of some of the world’s savviest investors. It appears that many are cautiously optimistic but are still avoiding risk, mainly due to fears of a contagion from Europe’s financial woes. Ryan Detrick, senior analyst at Schaeffer’s Investment Research, said, “We still think it makes sense to be cautiously bullish here. Don’t go overboard, obviously, because those Europe concerns are clearly still relevant.”

In an interview on Wednesday, Christopher Waller, research director for the St. Louis Federal Reserve Bank, warned that economic recovery in the U.S. is likely to be a process that will take several years and that the Federal Reserve can do little to shorten it. “Something’s happened in U.S. labor markets that we can’t overcome,” he said, adding, “No matter what we do, recovery is going to be slow.” Bullard has said the Fed shouldn’t engage in any additional easing of monetary policy unless the U.S. economy derails from its current modest growth, stating, “There’s no point in trying to say, ‘Cure cancer with monetary policy.’ It’s just not possible.”

100 Corona Gold Coins & Gold 50 Pesos

For decades, these Gold coins have remained a world favorite for people interested in Gold investments because the premiums charged for these coins are normally lower than for most other Gold bullion coins. The 100 Corona coin contains 0.9802 oz. of 21.6-karat Gold. The Corona coins were originally issued from 1908-14, bearing the date of mintage; after the death of Austrian Emperor Franz Joseph, the coins were imprinted with the commemorative date of 1915. The Austro-Hungarian 100 Corona coin is no longer minted. The 50 Pesos coins were minted in Mexico City. The Peso coin contains 1.2057 oz. of 90% Gold and 10% copper that strengthens the coin to endure the wear of circulation.

The eyes of the world are on Washington while Gold spot prices are at record-highs. Investors all over the globe have a stake in the outcome of the debt ceiling negotiations. With each passing hour, the nation moves closer to a crisis and anxiety builds. Markets reflected that anxiety this week. Precious metal prices are up due to safe-haven buying strategies and stocks are down sharply. In fact, the Dow Jones Industrial Average is set for its largest weekly decline in over a year, while Gold pushed to record high spot prices three times this week.

In Hong Kong earlier this week, Secretary of State Hillary Clinton spoke to Chinese investors. She spoke reassuringly that “political wrangling” is a part of democratic problem-solving. She explained that the U.S. is working towards resolving the disagreements and improving the country’s long-term fiscal outlook. She also framed the debt debate as a sort of bump in the road.

The partisan tactics being employed by U.S. political party leaders became clear on Wednesday when both President Obama and House Speaker John Boehner made televised addresses. President Obama clearly showed that the two sides are no closer to an agreement that would allow the U.S. to raise the debt ceiling in order to avoid what most analysts describe as a devastating default. “For the first time in history, our country’s triple-A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet,” he said in remarks late Monday. Obama was quite critical of the Republicans’ unwillingness to compromise but he made it clear that he expects a compromise package on his desk this week.

In his rebuttal, House Speaker John Boehner pointed the criticism back towards the President and the Democratic Party. He categorized the Democratic plan as “full of gimmicks.” There is still the expectation that an agreement will be reached, albeit a short-term one. Their concern is that the credit rating agencies may still downgrade the U.S. credit rating if they see no significant steps taken to reduce long-term debt.

Another concern is the Commerce Department data that reports any economic growth we were experiencing had actually started to wane late last year, not this year as a number of economists’ data implied. Previous reports had the economic growth at 1.9% during the second quarter, but in actuality it only grew 1.3%. According to Ryan Sweet, a senior economist at Moody’s Analytics, “The economy essentially came to a grinding halt in the first half of this year…We did get side-swiped by some temporary factors which are fading, but it raises some concerns about the sustainability of the recovery.”

In 2007, the U.S. Mint released the first four coins in a series of Gold First Spouse Coins. These coins are the government’s first 1/2 oz. 24-karat gold coins. They are also the first commemorative 1/2 oz. Gold coins. With a face value of $10, these .9999 fine Gold coins are minted and released annually in the order the First Ladies served in the White House. The First Spouse Coins are minted in Proof and Uncirculated condition. Each First Spouse Gold Coin will coincide with the release of the four annually circulating Presidential $1 Coins.

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With the looming debt ceiling crisis, Michael Haynes, CEO of APMEX, offers his unique perspective about the global and U.S. economies in these uncertain times and highlights the importance of diversifying your investments. As CEO of one of the world’s largest and most trusted online precious metals dealers, his insight comes from more than 30 years in the precious metals industry.

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With the recent chatter about the U.S. debt ceiling, the possibility of a default, and a credit ratings downgrade for the U.S., it’s easy to want to tune out the noise. Many people have the misconception that the whole situation doesn’t affect the average American; the world of high finance is so far removed from their world as to not have an impact on their way of life. Nothing could be further from the truth. Let’s take a look at how government bonds tie all the way from Wall Street to Main Street.

When the government needs to borrow money, it cannot resource a local bank branch for a loan. To borrow money, our government sells bonds to investors. These investors are mostly foreign central banks and large investment institutions. The investors buy the bonds which gives money to the government. The government pays the investor back their original investment, plus interest, over time. The interest is based on both the market conditions at the time and the creditworthiness of the government (loan rates are determined by the borrower’s credit score).

This trickle-down effect could be seen throughout our economy. From the homeowner looking for a mortgage, to the small business owner looking to expand, a shopper looking for a new television, or even the farmer who needs a loan to get through the growing season, credit is the oil that lubricates our economy. Additionally, if the U.S. credit rating is downgraded, we could soon be paying higher prices for all purchases. It won’t matter how high an individual’s credit score is or how many bills he or she has paid on time, that person will still be subject to the rising tide of interest rates. A rising tide lifts all boats and this tide may be coming as we speak.

All eyes were focused this week on the European debt crisis and the U.S. debt ceiling discussions. While there was serious progress made on one of these issues, it’s certainly debatable whether any real progress was made on the other.

Following a day-long meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy on Wednesday, the European Union leaders approved a bailout plan for Greece. Details of the European Union’s bailout of Greece have emerged, and the package is being seen as stronger than expected. Fitch Ratings said it will declare Greece to be in “restricted default,” however this was an expected consequence, according to EU leaders. The deal is expected to stave off any contagion to other countries in the euro zone.

In the U.S., every time progress appeared to be made, it stopped dead in its tracks. A major deficit plan was agreed upon by the bipartisan “Gang of Six” in the Senate. This deal would reduce federal deficits and is seen as a major step forward in debt ceiling negotiations. President Obama had publicly backed the plan, but he has since backed off. House Republicans voted this week in favor of a campaign to reinforce their budget views and eliminate the need for compromise. The slogan for this campaign is “Cut, Cap and Balance.” A bill the Republicans are promoting this week would condition any increase in the debt limit on immediate spending cuts, set caps on future outlays and require a congressional passage of a balanced-budget amendment to the Constitution. Obama has specifically said that he will veto this bill if it passes the Senate.

President Obama is now said to be working on a major deficit-reduction package that includes $3 trillion in cuts while not including immediate revenue increases. This is a sticking point to Democrats, who are said to be upset with the plan. Obama would have to convince his fellow Democrats that this is the right deal, and he will need to do it quickly; the U.S. is now a mere 11 days away from defaulting on its debts.

Credit rating agencies were in the headlines frequently this week. On top of the situation in Greece, the agencies came out in force to warn of the consequences of a U.S. default. Standard & Poor’s reiterated its position Thursday that if the U.S. government misses its scheduled debt payments, it could cut the U.S. credit rating as early as August. There is some tie-in to both raising the debt ceiling and balancing the budget that S&P needs to see to avoid that type of action. The trickle-down effect could be catastrophic to a number of companies, including Fannie Mae and Freddie Mac, plus the sovereign debt rating and the insurance industry. Senator McConnell’s “back-up plan” that had been discussed as a fall-back option has just been discredited by Moody’s as not doing enough to balance the budget and would still put the U.S. on a path for a negative credit outlook.

Gold hit a record high Monday, and has spent most of the week around the $1,600 mark. Silver hit over $40 for the first time since May, and remains in that range.

America the Beautiful 2-Coin Set

The America the Beautiful Silver bullion program marks a significant change for the U.S. Mint’s coin offerings with the introduction of the larger format of five Troy ounces of Silver bullion. The entire 56-coin collection will display the beauty and diversity of America’s National Parks and sites. The coins will be issued over the course of 12 years. Designs and inscriptions are duplicates of the currently circulating commemorative quarters.

The Gettysburg National Military Park coin shows the Soldiers National Monument, which stands in the center of the Soldiers National Cemetery. This monument was constructed to honor the soldiers who fell at the Battle of Gettysburg in July of 1863. The statue now stands guard over the 6,000 American soldiers laid to rest at Gettysburg.

The Glacier National Park coin depicts the majestic glacier-carved Mount Reynolds. The mountain goat in the foreground reminds us of the diverse wildlife fostered within Glacier National Park. Glacier National Park obtained federal protected status on Feb. 22, 1897 and consists of 1,000,000 acres.

Are you intrigued about the reasons why investors are purchasing more Gold? A primary reason for this interest in Gold is its role as an insurance policy. Possibly because no one has ever defaulted on Gold, it is considered an insurance policy that will pay out when needed. The following are examples of how Gold reinforces that belief and how it provides financial security and protection against uncertainty:

The fragile economic recovery we are experiencing in the U.S.

The high level of debt in our cities, states and federal government.

The fragile economic recovery in the European Union, Russia, Japan and many other parts of the world.

The sovereign debt crisis in Greece, Portugal and Ireland that threatens to spread into Italy and Spain and eventually the entire European Union.

The geopolitical tensions in the Middle East; India and Pakistan; North & South Korea and elsewhere

The volatile currency markets. Even Central Banks are becoming less reliant on paper money and trading it for gold.

The devaluation of the U.S. dollar.

Investors try to deal in financial markets which move at the speed of light, and where “flash crashes” occur and one year later can still not be explained.

Inflation in the U.S. and other countries where governments choose to print more money to cover their debts.

Black Swan Events. The recent earthquake, tsunami and nuclear reactor problems devastated Japan. Unexpected events with severe negative consequences cannot be predicted. We know they will come but we cannot anticipate the time and locations.

Gold holds value in times of uncertainty where your other investments do not. There is an old saying, “Put 5-10% of your money in Gold and 90-95% into the three primary asset classes; then every night go to bed and hope Gold prices go down because that means everything else just went up.”

Some big gains for Gold and Silver occurred this week even though this trading week was abbreviated. Gold spot prices went up $62.00 per ounce for a gain of 4%; Silver spot prices ended up $3.00 per ounce increase for a gain of 8%.

Sovereign debt worries around the globe continue to be the dominant news story this week. Tuesday brought a downgrade of Portugal’s debt to a junk rating by Moody’s. Moody’s was the first ratings agency to move Portugal’s debt to less than investment grade. Reflecting the sentiment that the euro zone is nowhere near the end of the crisis, Robert Tipp of Prudential Fixed Income said, “[Portugal’s] ratings downgrade reminds markets that it’s not just Greece with debt issues. Once Greece gets wrapped up, you move on to the next country. …[T]hat will be the shape of things to come over the next year or two…” The value of the euro tumbled on the news of the downgrade.

The 1 ounce Gold Chinese Panda coin is the gem of the Chinese bullion program. The Gold Chinese Panda has been minted since 1982 and is considered one of the world’s most beautiful bullion coins. These coins may bear (no pun intended) a mintmark of S or Y. The S mintmark designates the coin was minted at the Shanghai Mint, while a Y mark denotes Shenyang as the coin’s origin. In an effort to maintain public interest in the Pandas, the Chinese change the obverse design each year (excluding 2002). Fortunately for the artists and customers alike, the Panda is a majestic and easily identifiable creature.

As worldwide demand for the Gold Panda grows, counterfeiting has become an issue. Interested investors should always purchase Chinese Gold Pandas from a reputable dealer (like APMEX) to ensure quality and authenticity.